A preliminary earnings announcement is slamming solar energy stocks Friday morning. Shares of Enphase Energy (ENPH 3.80%) -- a leading solar technology system provider -- plunged as much as 16% and remained lower by 13.6% as of 10:30 a.m. ET.
The early earnings warning came from peer SolarEdge Technologies, whose stock was hit even harder, down 28% at that time.
Unexpected cancellations in Europe
Investors have known that the current high-interest-rate environment in the U.S. continues to be a headwind for solar installation growth. SolarEdge warned investors last night that it will miss its own third-quarter guidance for revenue, operating income, and gross margin. But it surprised the market when it warned that it is experiencing "substantial unexpected" cancellations from its European distributors.
SolarEdge management noted that the summer and early fall months are normally when installation rates rise. But slower rates and rising inventories are now taking their toll. Investors today realize that there is now reason to believe that Enphase could experience the same demand drop.
The current interest rate environment had already pushed shares of Enphase lower over the last six months. Today's move pushes that decline to more than a 50% drop in the stock.
No quick fix
When it reported second-quarter results in July, Enphase acknowledged that it expected third-quarter revenue to decline by about 20% sequentially. But some of that is typical cyclical seasonality in its business. Investors, though, may be looking at the European business it highlighted in the quarterly report, including in Germany, Poland, and the Netherlands.
Enphase reports its third-quarter earnings next week on Oct. 26. Investors, however, aren't waiting to hear what it says about Europe this time after the stunning news from one of its close competitors.
Even if Enphase has avoided the cancellation rates announced by its competitor in Europe, investors still shouldn't expect a quick rebound from the stock considering the slowdown in the U.S. But for believers in long-term residential solar growth, it could be a good time to buy the stock once the volatility settles down.
